Why 'Alternative' Energy Will Go Mainstream

Cowen analyst Robert Stone thinks there are growing trends that make the alternative energy stocks he follows more attractive.

One of those factors is the concern that utilities will not be able to keep up with power demand and could have a real shortfall in the next decade.

"In the U.S., electricity demand outpaces generating and grid capacity, and uncertainty clouds our heavy reliance on coal. In Europe, energy costs are driving inflation, while import dependency raises security concerns," he wrote in a note.

In the U.S., peak power demand is expected to grow about 18 percent in the next 10 years, while grid capacity is expected to grow just 8.4 percent, according to data from the North American Electric Reliability Corp.

Utilities could also face increasing difficulty locating and building coal-fired plants, and nuclear power plants will take years to build. That would leave an opening for more alternative energy sources, such as solar, and provide opportunities for companies that are involved in demand response.

Just this week, Citigroup, J.P. Morgan and Morgan Stanley said that they are imposing new standards on lending for coal-fired power plants. They said they expect the government to cap greenhouse gas emissions from power plants in the next five years and they will now require utilities to prove the plants will be economically viable even if there were new caps on carbon dioxide.

"It's a foregone conclusion that things will change in the next political cycle because Democrats are likely to increase their majority in Congress...whether a Democrat or Republican is elected to the White House. Even the Republican front runner [Sen. John] McCain has been an advocate for climate change policy so we're in front of a big political shift," Stone said in a telephone interview.

Some of the names Stone likes include Evergreen Solar, Hoku Scientific, SunPower, First Solar, Trina Solar and Comverge.

Coincidentally, Cambridge Energy Research Association (CERA) highlighted some of those same trends in a report it released this week.

CERA said increasing public concerns about climate change are driving public policy and private investment, and will take clean energy from the fringes. In fact, CERA expects climate change response to drive $7 trillion in clean energy investment by 2030, and renewable power and biofuels could provide 16 percent of electric and transportation fuel by 2030.

"It's a period of indecision about coal right now. Some plants that utilities proposed have not been approved by regulators, and everybody now recognizes that they will have to build the foundations of a carbon strategy into their new coal projects," said Dan Yergin, chairman of CERA.

"Renewables are going to grow a lot but you still have to keep in mind, and what's bracing, is the overall scale of the energy industry," Yergin said.

"Even big growth of renewables is still a smaller part of the overall industry. The key challenge for renewables is to bring down their cost and prove they are can have an impact on a large scale. That's job one," said Yergin, who is also CNBC's global energy analyst.